Unexpected drop in the ZEW index - experiencing "decline, predicament, and powerlessness"
Economic experts are growing increasingly pessimistic about Germany's financial landscape. The ZEW index has unexpectedly plummeted significantly. One analyst observed that there's no sign of hope on the horizon. The atmosphere is expected to remain bleak until the elections.
Financial specialists are evaluating Germany's economic situation as negatively as they have since the Corona recession over four years ago. "The prospect of a swift economic recovery is dwindling," remarked ZEW President Achim Wambach on the development. Bank economists share the same sentiment. "The optimism of spring has vanished," stated Deutsche Bank Research's chief economist, Robin Winkler. "A grim autumn is approaching."
Alexander Krüger, Hauck Aufhäuser Lampe's chief economist, was even more blunt. He described the data as painting a picture of "collapse, crisis, and despair." He further elaborated, "Especially the dire assessment of the situation suggests another quarter of stagnant growth." Expectations have also nose-dived since there seems to be no light at the end of the tunnel. "A shift in mood isn't foreseen until the federal election in 2025," the economist forecasts. If the economic slump persists, the government will continue to struggle with the budget.
The ZEW index for the current situation fell by 7.2 points to minus 84.5 points in September, as reported by the ZEW-affiliated Mannheim Center for European Economic Research. This is the lowest value since May 2020, when the corona pandemic led to a downturn. The index for the future outlook fell by 15.6 points to 3.6 points. This marks the third consecutive decline and the lowest value in nearly a year. Economists had only predicted a decline to 17.0 points.
"The number of optimists and pessimists for the economic outlook is now balanced," said ZEW President Wambach. Despite the European Central Bank (ECB) loosening its monetary policy by lowering its key interest rate in June and September, "most respondents seem to have already incorporated the ECB's interest rate decision into their expectations," he added.
Currently, Germany is technically in a recession. The GDP shrank by 0.1% in the second quarter, following a 0.2% growth in the first three months of the year. Two consecutive negative quarters are considered a recession.
"For a sustainable recovery, the order books of German companies would need to pick up again," says VP Bank's chief economist, Thomas Gitzel. However, "that's exactly the problem at the moment," he lamented. Particularly the industries engaged in international competition, such as automotive and steel, are struggling. "The automotive and steel industries are facing bad news," confirmed DZ Bank's economic analyst, Christoph Swonke. "Layoffs can no longer be ruled out." This uncertainty is also affecting consumers.
Given Germany's financial struggles, calls for strengthening the Economic and Monetary Union within the Eurozone have grown louder. Despite the European Central Bank's efforts to boost the economy through monetary policy, the pessimism among financial analysts suggests that Germany may need more structural reforms to navigate out of this recession.
